Dow powers towards major target

Price at time of writing – 15,570.

A further 333-point surge in the two weeks since my last Dow update has taken the index to within 605 points, or just 3.9%, of my major target at 16,175. 

In current markets, advances of the magnitude can occur quite quickly, and preparations to take profits should be now be in the planning. In the meantime, my long recommendation remains completely intact.

The Dow and Germany's DAX have been the two outstanding major indices since global share markets offered investors the buying opportunity of a lifetime, as they collectively hit their major support levels in early 2009. The DAX has just pipped the Dow in their race to a 150% advance over the subsequent period. The DAX arrived at this milestone just last week, and you can see my profit-taking recommendations in today's  German update. The Dow now looks poised to follow suit and reach this milestone imminently, taking an impressive second place.

The two indices advanced towards these aggressive targets with differing tailwinds, however. The US economy benefitted from very aggressive monetary stimulus, implemented much earlier, and now known to the world as quantitative easing (QE). I saw this as a tactic to financially punish those who hoarded cash and refused to engage in the investment process for the greater good of a US economic recovery. As such it worked perfectly. Meanwhile, Germany and its world-leading manufacturers discreetly enjoyed the opportunity to export best-of-breed products to a global market, but crucially with the advantage of a currency much weaker than its situation justified. For this, the nation has everything to thank for the problems experienced by its struggling eurozone nation peers.

My charts suggest some greater divergence now lies ahead for global share markets. Economically-stable eurozone markets like Germany, the Netherlands and Belgium have fulfilled their respective upside targets, and look set to underperform. However, Eurozone markets that have struggled, such as France, Spain, Ireland and Greece, are still in various stages of sharp upside breakouts. Mining- and resource-dependent nations such as Australia also look set to expand upon recent sharp gains. The US and UK markets have further modest upside, and are likely to be caught somewhere between these wider divergences that I expect will become clearer in coming weeks.

Recommendation: stay long. Target 16,175, where profit should be booked and short positions opened.

Dow Jones chart

No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. The research does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.